Risk Adjustment: Important Considerations for Global Payments to Providers

Risk adjustment has become an important tool in setting global payments in provider payment reforms. It is used by private health insurers such as Blue Cross Blue Shield of Massachusetts in the Alternative Quality Contract. The U.S. Department of Health and Human Services issued proposed rules in April 2011 on Medicare accountable care organizations, and discussed different approaches to using risk adjustment to set benchmarks for savings calculations.

This paper, prepared by Milliman Inc. for the Massachusetts Medical Society, discusses principles and important considerations when using risk adjustment in provider payment reforms. Specifically, it discusses:

  • The key principles of risk adjustment-in addition to clinical and statistical rigor, the design of a risk adjustment model should also be transparent and meaningful with regard to data and patient assignment;
  • Risk adjustment should be practical with respect to imperfect coding
  • Risk adjustment may never be perfect but can always be improved with better design, richer data, and more advanced modeling techniques

Download the report. (.pdf, 10 pages, 140 kb)

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